Worries about European banks, UK austerity measures, US Housing, and the beginning of a two day FOMC meeting are all on today’s marquee

Worries about European banks, UK austerity measures, US Housing, and the beginning of a two day FOMC meeting are all on today’s marquee.  Stress tests and downgrades on banks across the pond got the early morning trade going.  Housing, as in Existing Home Sales, piled on to the gloom as the index fell to 5.66 million units, well below analysis’s expectations.  They were actually looking for an increase to 6.12 million.  Sales held steady in the Midwest, rose a touch in the South, jumped to 1.29 million in the West, and fell like a rock in the Northeast.  Pending Home Sales surprised on the upside, rising 6.0%.  New Home Sales (recorded at contract signing) jumped 14.8%, leaving many to scratch their heads wondering what happened to the Existing Sales numbers.  The divergence is most likely buried in the last dash for 8K buyers credit program which will shake out in the next 60 days.

FHFA (home price index) was plus .8% in April, reversing a two month slide.  On balance, housing looks to be stable but guarded.  Pimco strategist, Richard Clarida is on the wire talking about the Fed changing their language in tomorrow’s policy statement.  The change is regarding the economy as “sluggish” from stable, noting that since April, world and US economies have softened.  We have treasury paper coming to auction as well.  2’s today, 5’s tomorrow, and the 7 year note on Thursday.  Shouldn’t be a problem here.

We also got a peek at early predictions of month end extension needs.  Those are for money funds, etc. that much adjust to meet the Barclay’s index.  Extension needs for June look to be a bit larger than normal with the treasury complex needing to add .6 years and MBS .10 years.  In a nut shell, this will create buying in fixed income, adding support to Austin mortgage pricing.  Technically, the bias is neutral looking to buy weakness and sell strength.  Nothing new here as this has been the trend for the past several sessions.

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